WHAT CAN PAKISTAN INTERNATIONAL AIRLINES CORP. V TIMES TRAVEL TELL US ABOUT THE ‘REASONABLE EXPECTATIONS OF HONEST MEN’?

While he might use differently gendered language today, the statement of Steyn LJ (as he then was) in his judgement in First Energy v Hungarian National Bank that the objective of ‘our’ law of contract is ‘to protect the reasonable expectations of honest men’, can be seen as a perfect encapsulation of decades of case law and doctrine that seem to point in this direction but so often leave this implicit (although much extra-judicial writing is clear on its importance).  While the principle of ‘fair dealing’ – which Bingham LJ (as he then was) claims is at the heart of good faith principles in Civil Law systems -may not underpin his judgment in Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd. the desire to give effect to the reasonable expectations of honest men very well might.  The same could be said of dozens of cases that apply the principles of contextual contract interpretation from L. Schuler AG v Wickman Machine Tool Sales Ltd. to Wood v Brittan.   

Given this approach is so important to shaping and understanding commercial law as a whole, what are we to make of the Supreme Court’s judgement in Pakistan International Airline Corp. v Times Travel Ltd? 

The PIAcase concerned a contract made between PIA and Times Travel. Times was a travel agent who sold tickets on behalf of PIA.  Commissions on such ticket sales accounted for a good proportion of their revenues.  By 2012, Times claimed PIA owed more GBP1.5m in unpaid commissions.  PIA disputed this and indicated it would substantially reduce Times’ ticket allocation under that agreement and sought to agree new terms. Subsequently, PIA and Times entered into a new agreement which included a clause under which Times agreed to not hold PIA liable for previous unpaid commissions but preserved its tickets allocation.  Two years later, Times began proceedings to recover the unpaid commissions, claiming they entered into the new contract under duress.

Duress normally arises where there are threats to a person or their property, but duress can also be economic, usually a threat of an illegal act, such a breach of contract, which leaves a contracting party with no other viable option but to agree to certain terms.  The Supreme Court acknowledged that a reprehensible act, in bad faith, even if lawful could amount to duress.  Here, the act was entirely legal albeit it was an act which the Supreme Court acknowledged “was the assertion of its power as a monopoly supplier” (at that time no other airline operated direct services from the UK).  Consequently, the Supreme Court did not find this act sufficiently egregious to amount to duress and stated that there would only be lawful act economic duress in the case of a waiver, where the victim had been manoeuvred into a vulnerable position by the other party and the other party knew that in truth they had no defence to the claim that might be bought against them.

The approach of the Supreme Court seems to set the bar extraordinarily high while also providing little guidance as to when it might be cleared.  Moreover, this seems to acknowledge that egregious abuse of power, including exploitation (or something close to it) of weaker parties is no more than part of the rough and tumble of commercial life.  But is this in line with the reasonable expectations of honest commercial people?  That the Supreme Court’s judgement sets such a low standard for behaviour and makes redress so difficult to obtain, perhaps gives us cause to reflect on what reasonable expectations are and may cause us to pause and consider what that tells us about the nature and function of commercial law.

This blog post has been contributed by Mr Rick Canavan, Module Convenor for Commercial law. University of London, LL.B (Hons.)